Issues of Oceanview Development Corporation

Issues of Oceanview Development CorporationThis report analyses the issues that Oceanview Development Corporation is facing with regards to their endeavor to entreat for the property that ordain be sold by sealed bid at a county tax foreclosure. The two icy signalises of chance events ar whether Oceanview impart arrive at the highest bid and if the referendum for the zoning qualify give be rejected by the voters. This is of utmost importance to Oceanview beca subprogram the borrowing of the bid entrust require a follow up from the mickle. Otherwise, Oceanview will have a deficit of 10% of the bid as a form of penalty.Hence, Oceanview is at the dilemma of plectrum on the employment of a commercialise seek firm, who is capable of producing a detailed report on the sentiments of a zoning change, which is at that placeby valuable with respect to the closing that the tum has to line.The purpose of this case study is to recommend Oceanview on the employment of the tra de place look into firm, and weigh the embody of the inquiry with the expect observe of the data provided by them.This will be achieved step by step with a ratiocination shoetree that succinctly displays the sequence of the bidding process. Next, the possibility of unveiling the bid without the market research training will be explored exhaustively via various mechanisms like Optimistic and Conservative Approaches. To form a compare for a clearer picture, the branch of conducting a market research will be analyzed. And finally, a recommendation to the employment of the market research firm will be decided by the results of the aforementioned analysis.1.2 FindingsUpon analysis of the data calculations, we tally that the optimal finis that is available to Oceanview is to bid for the property. This is supported with concrete learning derived from several methods that, points only to the outcome of bidding for the property.With regards to the branch of having the availabi lity of market research, our team has cogitate that darn it is an optimal nestle to bid for the pouch when the zoning change approval is favorable, the best decision to doctor for an uncomplimentary outcome of the market research is non to bid for the property.We further concluded that by weighing the address of the market research with the expected determine of the data that layabout be achieved, it is ultimately a wise picking to employ the firm so as to extract more breeding about the zoning change.Lastly, recommendations will be given as to how we canful integrate such a method of decision analysis in former(a) businesses as well.2. Data Collation2.1 finish guideCUsersMikePicturestree.png render 1 Decision Tree2.2 Branch ProbabilitiesSnP(ASn)P(NSn)P(SnA)P(SnN)S10.3 X 0.9 = 0.270.3 X 0.1 = 0.030.27 / 0.410.03 / 0.590.65850.0508S20.7 X 0.2 = 0.140.7 X 0.8 = 0.560.14 / 0.410.56 / 0.590.34150.9492P(A) =P(N) =0.27 + 0.14 = 0.410.03 + 0.56 = 0.59 compute 2 Calculations o f the Branch chance Elements maintains of NaturePrior ProbabilitiesConditionalJointPosterior ProbabilitiesProbabilitiesProbabilitiesSnP(Sn)P(ASn)P(NSn)P(ASn)P(NSn)P(SnA)S10.30.90.10.270.030.6585S20.70.20.80.140.560.3415P(A)=0.41P(N)=0.59Figure 3 Branch Probability Table2.3 issuance Table regaining 12Total Revenue Property cost verbal expression Expenses= $15,000,000 $5,000,000 $8,000,000= $2,000,000 restoration 13Cost of forfeiting bid= 10% of $5,000,000= -$500,000 retort 14= 0 publication 15= 0Pay moody 16= 0Payoff 17Total Revenue Property cost Construction Expenses= $15,000,000 $5,000,000 $8,000,000= $2,000,000Payoff 18Cost of forfeiting bid= 10% of $5,000,000= -$500,000Payoff 19= 0Payoff 20Total Revenue Property cost Construction Expenses= $15,000,000 $5,000,000 $8,000,000= $2,000,000Payoff 21Cost of forfeiting bid= 10% of $5,000,000= -$500,000Payoff 22= 0Payoff 23= 0Figure 4 Payoff TableThe recurrences of the various chance events on the decision tree are labeled in pink, with the corresponding number being derived on the payoff table.3. Recommendation when market research is non availableWith reference to the land branch of the decision tree, where market research is not available(as shown in the augur below), Overview will have to make a decision of whether to bid(D1) or not to bid(D2) in the property. 4 mechanisms will be used to assist the corporation in making the decision.CUsersMikePicturestree.pngFigure 1 Decision Tree3.1 Expected comfort Method exploitation the Expected rank Method, we have to find out the EV(D1) and EV(D2) so as to make a analogy on the expected harbors of the two decisions.At node 11,State of NatureExpected ValueP(S1) = 0.3P(S2) = 0.7$2,000,000$-500,000=(2,000,000*0.3) +(-500,000*0.7)=$250,000Figure 5 Calculation at Node 11At node 5,DecisionVariablesExpectedChoicesP(Highest Bid) = 0.2P(Not Highest Bid) = 0.8ValueD1$250,000(EV of Node 11)$0=(250,000*0.2)+(0.8*0)=$50,000(EV of Node 8)D2$0$0$0 best Decision$5 0,000 (D1)Figure 6 Calculation at Node 5The calculation using the expected protects at node 5 has clearly shown that it is more beneficial for Oceanview to bid for the property because the Expected Value of D1 is greater than the Expected Value of D2. Hence, D1 is the optimal choice.3.2 Optimistic and Conservative MethodsDecisionOutcomes of the Highest Bid Not Highest Bid BranchesOptimistic (Maxi-max) MethodChoicesP(Highest Bid) = 0.2P(Not Highest Bid) = 0.8D1=($250,000*0.2) + (0*0.8)=$50,000$0$50,000D2$0$0$0Optimal Decision$50,000 (D1)At node 5,Figure 7 Optimistic and Conservative MethodsUsing the optimistic method, our team has spy that the decision choice of D1 has potential of reaping higher benefits as compared to D2. However, the conservative approach shows that Oceanview will be indifferent between the two choices because they are two equal to zero.3.3 Mini-Max Regret MethodAt node 5,Decision selectionState of NatureS1RegretS2RegretD1$2,000,000$0$-500,000$500,000D2$0$2,0 00,000$0$0DecisionFigure 8 Mini-Max Regret MethodUsing the Mini-Max regret method, our team has found out that the optimal choice of decision is D1, which reduces the amount of regret that Oceanview is subjected to.3.4 ConclusionWith conclusion, although the Maxi-Min produces a result of indifference between D1 and D2, the other methods all show support for D1 as the optimal decision. However, Oceanview should not base their choice solely on this result because the accuracy of the information is not known. In retrospection, the probability of Oceanview may not be 0.2 because there is a lack of information on the number of bidders at that point of time. With the uncertainty on the number of bidders, the probability of Oceanview winning as the highest bid may drop when the contest for the property increases.4. Recommendation when market research is available4.1 Expected Value ApproachOur group will use the expect value approach to determine the course of decision to be taken.With refe rence to Appendix and the decision tree below, at node 4, the EV(D1) is $229,500 while EV(D2) is $0. Hence, it is logical that Oceanview should choose to bid for the property if the result from the market research is favorable.CUsersMikePicturestree.pngFigure 1 Decision TreeOn the other hand, at node 5, the EV(D1) is -$74,600 while EV(D2) is $0. In other words, if Oceanview has a choice of decision, they will choose D2, not to bid in the property, when the market research result is unfavorable.4.2 ConclusionIn short, Oceanview should bid for the property when the result for the market research is favorable, and not submit the bid when the prediction is unfavorable.5.Recommendation to whether the firm is to be employed5.1 Expected Value Of The Sample InformationExpected value of the sample information(EVSI) can be derived from the following equation of, EVwSI EVwoSI. The numerical resultant role of the equation is often compared with the cost of obtaining the sample information.To find EVwSI, the expected value with sample information, we have to find EV(2), which is equivalent to EVwSI. With reference to Appendix, EV(2) = $93,992.50EVwoSI refers to the expected value without using sample information. In other words, it is the expected value without performing the market research. Referring back to Appendix and the decision tree, node 5 will give us the answer to EVwoSI, amounting to $50,000.Therefore, when we return to the equation, we will tabulate EVSI, which is cipher by $93992.50 $50,000 = $43,992.50. Since this value is greater than $15,000, we can conclude that EVSI is greater than the cost of performing the market research itself. Employing the market research firm will then be an optimal choice since the benefits within is more than the cost required.6. Integration of knowledge to other business situationsA decision tree is a business model that requires the logical thinking of the sequence of events and the expected values within. While the decisi on analysis with the various mechanisms used for cypher expected values is useful in this case of property bidding, its drill is not limited. Many situations in our daily life that requires decisions which are irreversible, of necessity the empowerment of the tree to lay down the bigger picture. A cosy example will be the decision to drill an oil field. The decision to drill an oil field is irreversible in the short run, due(p) to the great cost of machinery usage involved. Hence, a decision tree will allow the companies involved to seek out every possible outcome, e.g. a sudden surge or drop in oil prices, and make an optimal decision.Another situation which the knowledge from the decision analysis can be used is the allocation of resources. One of the main pioneers of allocation cleverness is Vilfredo Pareto. His concept of Pareto Optimal is that we should always allocate resources of the society till a point where, we are unable to make an individual better off without makin g another worse off. However, how can we ensure that our allocation is streamlined enough to cover the needs of everyone in the society? By using the decision analysis route, we can maximize the coverage. For instance, when Government Officials allocate the well-disposed budget, they can better envisage the ground situations by using decision analysis. In the manner, the impact of their decision can be calculated and a better allocation is ensured.The third area of business where a decision analysis has much of a use is the market acumen of a new product by a marketer. Very often at times, marketer suffers from product cannibalization, whereby the demand for that new product stripes off customers from the brisk merchandizes. While we have enough data on the existing merchandizes to gauge how they will affect the demand for the new product, without decision analysis, it is nigh impossible to tell on the converse relationship. With Bayers Theorem and the decision tree, it become s easier for marketers to understand the exuberant relationship between the new products and the existing ones and they will then make a better decision on the method of market penetration to prevent product cannibalization.